Canada’s weak innovation performance is partly a result of Canadian business leaders’ sometimes inaccurate beliefs about the innovation environment, according to a Conference Board of Canada report based on results from the World Economic Forum’s Global Competitiveness Survey 2011-12.

“Canadian business leaders may be less inclined than their global counterparts to adopt innovation as a business strategy because they do not see it as rational or necessary in their current environment,” said Daniel Munro, Principal Research Associate. “Many Canadian business leaders feel that competitive pressures are not strong enough to motivate innovation, capital markets are too weak, and the tax burden is too high. But their perceptions do not always align with reality.”

Canada placed 11th among the 142 countries ranked on innovation in the WEF’s Global Competitiveness Report 2011-2012, but trailed key competitors such as Japan, the United States, and Germany – as well as small advanced economies like Switzerland, Sweden, and Finland. In the Conference Board’s 2010 How Canada Performs: A Report Card on Canada, Canada received a grade of “D” and ranking of 14th out of 17 peer countries on innovation performance.

Perceptions of high taxation, less intense competition, and weak capital markets, help to explain why Canadian firms are less likely to innovate than global peers.

Canadian business leaders cited the tax and regulatory burden as a barrier to innovation. Yet Canada’s business tax rate is one of the lowest among its main global competitors. Canadian leaders’ perception of the tax burden ranked 40th in the Global Competitiveness survey, Canada’s actual total tax rate ranks 29th in the world – placing the country ahead of innovation powerhouses such as the United States, Switzerland, Sweden, and Japan.

When asked to assess the intensity of competition in local markets—a key driver of innovation—Canadian business leaders gave it 5.6 on a seven-point scale. This put Canada 21st among the 142 countries, but behind most of its major competitors.

Business leaders also see Canada’s capital markets a key barrier to innovation. Ranking 19th in terms of leaders’ perceptions of venture capital availability and 22nd on ease of access to loans, Canada trails a handful of international competitors like Norway, Sweden, and Finland, though it ranks higher than Switzerland on both indicators.

“Canada has many innovation strengths—including world-class institutions of higher education and research. But business leaders report many barriers—some real, and some perceived—that may be stalling innovation performance. The challenge is to focus efforts on overcoming real barriers while dispelling the illusions,” said Munro.

To drill down on the impediments to firm-level business innovation in Canada, the Conference Board has established a new Centre for Business Innovation (CBI). A major, multi-funder five year program of research and consultation. CBI’s mission is to:

develop performance indicators and establish metrics that track innovation activity inside firms so that progress can be made;

contribute to the formulation of public policies and private sector strategies to drive business innovation; and

help Canada become a world leader in firm-level business innovation.

The Centre for Business Innovation has embraced the measurement and benchmarking mandate identified by the Coalition for Action on Innovation in Canada. The Centre’s research will delve into four other areas: business strategies for firms; capital markets; people; and public policy.